Cost Recovery

Introduction to Cost Recovery (Rental Rate Blue Book)

The Rental Rate Blue Book is a comprehensive guide to cost recovery for construction equipment.  Rates listed in the Rental Rate Blue Book are intended as a guide to determine the amount an equipment owner should charge in order to recover equipment-related ownership and operating costs.  These rates are derived from cost formulas and factors developed from field research and from analytic methods used in the construction industry.  Generally, these methods include both direct and indirect costs and consider such operating variables as annual use hours, maintenance and overhaul costs, as well as unit price information such as fuel prices, labor rates, and the cost of money.  Profit, project overhead, and general company overhead costs such as office facilities and supplies are not included in the rates shown. (Please see detailed cost explanations located elsewhere within this User Guide).

Important Update, July 2017: For Nearly 60 years, EquipmentWatch has been committed to providing customers the most current and accurate equipment cost data that adequately reflects ongoing economic conditions.  Over the last few years, rapidly changing the economic patterns that have impacted construction-related industries, volatile energy prices, as well as advances in data science and technology, have compelled us to adopt a more frequent update cycle for our online Cost Recovery and Internal Charge Rate data.

While we’re certain that our customers with access to online data will enjoy more current and frequently updated equipment rates and data, we’re aware of the limitations to adopting the same update cycle with our print version.  Thus, beginning with the  January 1st Half 2017 update, we will no longer guarantee that print and online Cost Recovery (formerly Rental Rate Blue Book) data will consistently be in sync.

Selecting a Configuration

If multiple configurations exist for a model, selecting a configuration is required before you can see your cost recovery rates.  Choose the specifications relevant to your asset from the drop down menus.  Once your specifications are selected, click the orange “Confirm Equipment Configuration” button to display Cost Recovery Rates.

Selecting a Configuration

 

Adjusting Cost Recovery Rates for a Specifying Organization

You can make adjustments to your cost recover rates manually or by selecting an organization from the drop down menu.  Most contracts will require certain adjustments to be made before submitting rates.  EquipmentWatch has collected and sorted requirements for over 30 organizations so that when you chose the organization you’re working with the necessary adjustments are automatically applied.

Selecting a Specifying Organization

Making Adjustments Manually

If you want to make adjustments manually, make sure the check box next to “Enter Values Manually” is selected.  You can then make location adjustments by city or state, adjust the ownership percentage, adjustment operating percentage, as well as the time standard displayed (monthly, weekly, daily, hourly).

Making Adjustments Manually

Printing Cost Recovery Rates

If you would like to print your cost recovery rates for submission or for your own records, you can click the print button at the top right corner of the page.

Printing Cost Recovery Rates

Downloading Cost Recovery Rates

If you would like to download your cost recovery rates, you can click the download button at the top right corner of the page.

Downloading Cost Recovery Rates

 

What is the Rental Rate Blue Book?

The data in the Rental Rate Blue Book is organized by equipment manufacturer and model, and includes models still in production to models discontinued as long as 30 years ago. This on-line cost recovery information is designed to provide accurate and authoritative information in regard to the subject matter covered. While all efforts have been made to assure total accuracy, the variable nature of the information and informational sources precludes any warranties of specific accuracy in any specific instance.

The term "rental" does not refer to third-party contracts for the use of equipment and as such, rates are not a tabulation of rates being charged by third party rental companies.  Only by coincidence would RRBB rates match those charged by rental companies.

FHWA (Federal Highway Administration) has approved the use of Rental Rate Blue Book on federally funded projects. The most common application is in force account work and for federally funded projects. FHWA has limited their participation in matching funds with state highway agencies (using Rental Rate Blue Book) to the monthly rate divided by 176 (hours/month) plus the hourly operating cost. Additionally, FHWA states that the rates must also be adjusted for age and geographic region. Therefore, the "FHWA" rate in the Blue Book represents monthly rate/176 x Age Adjustments x Regional Adjustments plus hourly operating cost. User defined adjustments are also included in the FHWA rate shown.

Ownership Costs

The ownership costs of depreciation, indirect costs, cost of facilities capital, and major overhaul are annualized and then adjusted to reflect the average annual working season to obtain a monthly rental rate, from which weekly, daily and hourly rates are derived.  Rates are increased to account for lost availability and productivity during shorter use periods according to the following:

The weekly Blue Book rate is approximately 28% of the monthly rate, Based on the loss of roughly 32 hours during a month when machinery is used on a weekly basis.

The daily Blue Book rate is approximately 25% of the weekly rate, based on the loss of roughly 60 hours during a month when machinery is used on a daily basis.

The hourly Blue Book rate is approximately 15% of the daily rate, based on the loss of roughly 80 hours during a month when machinery is used on an hourly basis.

  • User-Defined Ownership Adjustments:  The User-Defined Ownership Adjustment is designed to modify the total equipment ownership cost by a single user-defined factor.Although this adjustment can be used for any purpose, it is widely used to break out portions of the ownership cost such as depreciation, CFC, overhead, or overhaul costs. This function is also useful in addressing multiple shift and standby situations.
  • Rate Element Allocation:  The “Rate Element Allocation” tables at the bottom of the results page details the percentages of the Ownership rate attributable to each cost element.
  • Depreciation Costs:  Depreciation in this guide refers to capitalization of the acquisition cost of equipment by a straight line, even accrual of funds over an established economic life.  As applied in this context, it is not to be confused with other methods of determining depreciation for taxation or other accounting purposes.  The Depreciable basis includes the discounted Manufacturer’s list price plus sales tax and original freight costs, minus the cost of a new set of tires (if wheel mounted), and minus the salvage value at the end of the machine's economic life.Under certain circumstances, for example in projects governed by federal cost principles, the depreciation portion of the rates in this guide may need to be adjusted to reflect the original purchase price of a machine rather than the last list price. The “Model Year” adjustment performs this calculation and automatically adjusts the Ownership portion of the rate.
  • Indirect Equipment Costs:  Equipment indirect costs consist mostly of overhead costs such as normal risk insurance and property taxes along with storage, security, mechanics supervision, inspection, licenses, and record keeping.A portion of these costs is sometimes recovered in project or general company overhead and can be backed out of the RRBB rate using the User Defined adjustment feature for Ownership cost.  The contribution of indirect cost to total Ownership cost for each piece of equipment can be found in the Rate Element Allocation Table at the bottom of the results page.
  • Cost of Facilities Capital:  Cost of facilities capital (CFC), which is not the same as interest charges, is an allowance for the cost of money invested in machinery, whether the machinery is purchased in cash or financed over time.CFC is calculated by the following formula:

[(N-1) x (1+S) + 2] x CMR /(N x 2) x P  =  CFC

Where:

= Economic life of machine in years
S = Salvage value percentage
CMR = Cost of money rate (as set by the US Treasury Dept. each Jan 1 and July 1)
P = Purchase price of the machine
CFC = Annual cost of facilities capital

  • Major Overhaul:  The ownership rates include an allowance for major overhaul costs necessary to keep a machine functional throughout its economic life. This allowance covers the periodic rebuilding of engines, transmissions, undercarriages, and other major equipment components.

Operating Costs

  • Hourly Estimated Operating Cost:  The Estimated Operating Cost Per Hour includes the following expenses:The cost of labor and parts needed for routine, daily servicing of the equipment. This includes repairing and/or replacing small components such as pumps, carburetors, injectors, filters, belts, gaskets, and worn lines.The cost of operating expendables. These include fuel, computed in accordance with horsepower, average load factors, and the price of fuel; lubricants, including filters, oil, and grease, as well as the labor and the lube truck involved in lubrication; tires; and ground engaging components, including pads, blades, bucket teeth, etc. Tire costs are calculated by average tire life factors and take into consideration typical discounts from list prices. Electricity costs (where applicable) are calculated according to generally accepted duty cycles for the total motor load.The Estimated Operating Cost Per Hour assumes that the equipment is in good operating condition. No allowances are made for equipment operating in severe conditions or beyond periodic maintenance services.The "Estimated Operating Cost Per Hour" in Blue Book may not include all operating expenses. The cost of extraordinary operating expendables, such as certain ground engaging components, such as hammer and drill bits, drill steel, augers, saw blades, and tooth-bits, are normally excluded because of their highly variable wear patterns. It is recommended that these costs be recovered separately.Operator's wages are not included in the Estimated Operating Cost/Hour.
  • User-Defined Operating Adjustments:  The User-Defined Operating Adjustment is designed to modify the total equipment operating cost by a single user-defined factor.Although this adjustment can be used for any purpose, it is widely used to address gross job factors such as job severity.Input a factor (in percent) and the total operating cost will automatically adjust.

Specifications and Rates

The correct equipment configurations can be identified by general specifications. Depending on equipment type, there may be separate listings for power mode such as gasoline, diesel, electric, hydraulic, PTO, kerosene and pneumatic powered units. Other specifications, such as transmission, horsepower, or bucket size, are given in order to facilitate equipment identification. “ROPS” = “Roll over protection system.” “EROPS” = “Enclosed roll over protection system”.

  1. When horsepower is shown, it is the horsepower used for calculation of estimated operating costs per hour, or for identification of variations in like models of the same manufacturer. Whenever possible, flywheel horsepower is used based upon manufacturer ratings. For electric motors, horsepower is 1.341 times the kilowatt rating or as listed by the manufacturer for a given RPM.
  2. Cubic yard capacities of equipment vary with material and swell factors; therefore comparisons will be kept consistent by using struck capacity at an average weight of 2,400 pounds per cubic yard.
  3. Ownership rates are given by the month, week, day, and hour for each piece of equipment. Hourly Operating costs are listed separately.

 

Monthly               Weekly           Daily      Hourly   Est. Operating Cost/Hr

2,870.00               805.00          200.00   30.00         6.70

10,645.00             2,980.00       745.00   110.00       25.75

5,480.00               1,535.00        385.00   58.00         12.40

The display defaults to those rates presently in effect, as indicated in the “Rate Effective Dates” box. Archived historical rates can be accessed for current equipment configurations by selecting an alternate effective date from the “Rate Effective Dates” pull-down menu.

  1. When applicable, the Ownership rates should be adjusted to reflect a depreciation allowance indexed to the year a machine was originally manufactured and sold. The top left of the page contains a pull-down menu labeled “year”. Selection of the specific model year will cause the age adjustment to be performed automatically.
  2. Ownership rates should also be adjusted for regional differences in annual use hours, cost of labor, freight, taxes, etc. The amount by which basic rates should be increased or decreased is automatically calculated by selection of a state/providence in the “Location” pull-down menu of the “Adjustments” section.

To figure the total cost for owning and operating a piece of equipment, sum-up the following items:

  • Hourly Rental Rate for Equipment (modified by the Rate Adjustment factors when applicable)
  • Rate for attachments (where applicable)
  • Estimated Operating Cost
  • Operator's Wage (including fringe benefits)
  • Costs for any additional operating or maintenance personnel required

The total cost suggested here is a guideline. It is not meant to define the actual rate a lessor may charge. The actual rate may be increased or decreased by factors not taken into account, such as severe job conditions, etc.

Historical Rates

Archived Rental Rate Blue Book rates are sometimes required to settle claims, document job costs, or to complete audits.

To access these historic rates, find your model of interest by any of the methods available such as Search or Category selection. When on the Cost Recovery page, a pull-down menu is present which lists the Rate Effective Dates. The most current rate (shown as the default) is designated by: “(Month) (Day), (Year) - Present”. Historical rates are accessed by simply choosing the date range of interest from the pull-down menu, and the rate screen immediately refreshes to show data that was in effect during the time period chosen.

Along with the historical rates themselves, adjustment factors for Age and Region are also historically accurate and functional. Just choose the Model year and Location from the appropriate pull-down menus to adjust and recalculate the historical rate.

  • Rate Effective Period:  Choosing a default Rate Effective Period on the Default Settings page will cause the historic rate, in effect during the time period chosen, to be displayed for subsequent lookups.Default rate periods are listed by quarter in the pull-down menu to provide the user more flexibility in defining the effective date of interest. The nature of the Blue Book rates and how they are used does not allow us to change all equipment rates every quarter, instead, only certain equipment types are updated each quarter or half. These rates then remain in effect for approximately one year until that section is updated. Thus, when you select a Default quarter from the pull-down menu, the actual equipment results page may show a different, larger period that includes the default quarter. This is normal.Historical rates for models or configurations that are no longer included in the Rental Rate Blue Book may be obtained if available by contacting EquipmentWatch customer service at (800) 669-3282.

 

Adjusting for machine age differences:

The depreciation portion of the Blue Book Ownership rate is based on current or latest prices for the machinery. To compensate for different purchase prices for older machines, the Rate Adjustment feature is designed to index depreciation allowances to the year a machine was originally manufactured. Analysts have used the Producer Price Index, published by the US Department of Labor, Bureau of Labor Statistics, and manufacturer's price literature to determine historical and current prices.  This age adjustment is necessary for the rates to comply with federal cost principles concerning depreciation cost allowances.

The Rate Adjustment factors apply only to the basic ownership rates; they do not apply to the "Estimated Operating Cost per Hour."

Rate Element Adjustments

Adjustments to the Ownership rates, other than for Equipment Age and Region, can be made by referencing the Rate Element tables to estimate a specific adjustment and then inputting the desired factor into the User Defined adjustment in order to calculate a revised rate.

The Rate Element Tables in this guide are designed to allow for greater accuracy when adjusting Blue Book rates for standby, job severity, and duplication of costs. As defined earlier in this introduction, the Ownership portion of the Blue Book rate contains allowances for depreciation, major overhaul repairs, cost of facilities capital (CFC), and indirect equipment costs. The rate element tables show the percentage of the total Ownership rate is attributed to each cost.

For example, with Conventional Scrapers, the tables list these data:

Equipment Type               Depreciation      Major Overhaul                CFC        Indirect Costs

Conventional Scrapers             .28                          .43                              .19                   .10

For current models, the data in the Rate Element Tables are within +/- 3%.  For discontinued models the accuracy is between +/- 5% and +/- 10%.  This diminished accuracy for discontinued models is due to the high variations in resale values for older machines. A basic rule of thumb is that the overhaul portion of the rates for older machines increases with age.  The data in these tables do not apply to the Estimated Operating Cost per Hour.  The application of the data in these tables need not be limited to the situations described below.

  • Multiple Shifts:  No industry standard exists regarding the handling of fixed Ownership costs in computation of overtime rates. It is the responsibility of the contracting parties to agree on an appropriate method.  Two commonly used methods are outlined below as examples of how overtime rates may be established.At the rate of 1/8th of the daily rate for each hour in excess of eight hours, 1/40th of the weekly rate for each hour in excess of forty hours, and 1/176th of the monthly rate for each hour in excess of 176 hours within a thirty-day period.At 50% of the monthly, weekly, daily, or hourly Ownership rate (including Overhaul parts and labor) for each overtime hour worked.

For example:

Single shift (8 hours)     = $100 per day

Double Shift (16 hours) = $150 per day ($100 for the first shift and $50 for the second)

Triple shift (24 hours)   = $200 per day (100 for the first shift and $50 each for the second and third)

Note: Operating Costs should be charged at the full rate during all shifts.

  • Standby Rates:  Standby refers to the situation where equipment is on the job and available for work, but is not put into operation until needed. Under certain circumstances, for example during forced or legal standby, contractors may be entitled to payments for their equipment on standby. These payments are meant to reimburse the contractor for fixed costs such as depreciation, cost of facilities capital, and indirect equipment costs.No industry standard exists regarding the computation of standby rates. However, data in the Rate Element Tables can help users identify an appropriate standby rate. For example, using the tables for Conventional Scrapers, one way to calculate a standby rate might be to add the factors for depreciation, cost of facilities capital, and indirect costs to obtain a total percentage of the Blue Book rate applicable for a standby allowance.In this case:        0.26(for Depreciation) +0.08(for CFC) +0.06(for indirect costs) = 0.40

Adjusting for climate and location costs.

The location adjustment option is designed to show location variations of average equipment ownership costs.  The pull down menu in the “Adjustments” section of the results page lists locations to select, which will automatically adjust the rate.  The amount by which the rental rates should be increased or decreased is based on several factors that influence ownership costs. These factors include local mechanics' labor, sales tax, freight, and climate. The most significant factor in location variation is climate and its effect on the average annual use hours (the working "season"). A shorter working season means rates will be higher in order to recover fixed costs.

No attempt is made to identify specific locations, such as mountainous areas or municipalities, within any region. Extreme climatic variations should be considered separately. Information concerning climate regions and location adjustments is obtained from direct surveys of contractors and equipment users, government indices, industry periodicals, and climatological maps. Every effort has been made to process and review this data for statistical certainty, but the research staff of EquipmentWatch does not present these area adjustments as exact factors. Users of these factors should refer to their own judgment and experience when modifying suggested adjustments to reflect specific conditions.

Location adjustment factors are meant to apply only to Ownership rates. They are not intended to be adjustments to the "Estimated Operating Cost/Hour."

  • City Adjustments:  NEW - April 2015 UpdateDue to varying cost of business from city to city, we've added city level location adjustments in order to provide a better benchmark against your own internal charge rates.As always, please check your contract before making any regional adjustments

Default Settings

Default Settings is designed to provide the user a method of applying global adjustments to the Rental Rate Blue Book. Its use allows for the display and application of user-selected rate adjustments during subsequent equipment lookups without having to perform these adjustments for each lookup.

Default Settings duplicate 4 of the adjustments available to the user in the Rental Rate Blue Book:

  • Location Adjustment
  • User-Defined Ownership Costs
  • User-Defined Operating Costs
  • Historical Rates (Rate Effective Period)

To activate the default settings, simply input the desired adjustments or select the desired rate effective period click the “Save” button.

Future results displayed in Rental Rate Blue Book will reflect those adjustments saved in Default Settings. However, the user can override the Default Setting adjustments, by simply selecting or entering different adjustments while on the model details page, and clicking the Adjust Rates button.   These new settings can only be saved from the Default Settings page and not from the Rental Rate Blue Book model details page.

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